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Selling price is actually the price that a buyer pays in order to buy a product or service.Â It is a price more than the cost price and also includes a percentage of profit. Setting a selling price is a very sensitive matter as the sales of a product are based on it to a great extent. There are various ways and formulas that we can use to calculate the selling price. The basic formula to find the selling price used is as follows:

SP = CP + Profit

Where,

SP= Selling Price

CP= Cost Price

1. Â Selling price = Cost Price + Profit

2. Â Selling price = Marked/List price â€“ Discount

3. Â Selling price = (100+%Profit)/100 Ã— Cost price

4. Â Selling price = (100âˆ’ % Los)/100 Ã— Cost price

Marked price also known as the list price is the price that a seller spells out to the purchaser while selling price is the price that the seller actually receives from the buyer after a bargain or making a deal. In general, the selling price is lower than the marked price. However, sometimes the selling price and the marked price can be the same also. A fixed price shop, meaning that the shopkeeper that does not offer any discount or price cut of any sort is an example of it.

Following is the step-by-step procedure to calculate the selling price per unit:

Identify the total cost of all units being bought

Â Divide the total cost by the number of units bought to obtain the cost price.

Use the selling price formula to find out the final price i.e.: SP = CP + Profit Margin

Margin will then be added to the cost of the commodity in order to identify the appropriate pricing.

Thus, the selling price per unit formula to find the price per unit from the income statement, divide sales by the number of units or quantity sold to identify the price per unit.

For example, given sales of $80,000 for the year and 2,000 units sold, the price per unit is Rs.40 (80,000 divided by 2,000).

Markup is the amount of difference between an itemâ€™s cost and its selling price. Usually, depending on the industry type, it is demonstrated as a percentage of the cost.

Margin also referred to as Gross Profit) = Selling price â€“ Cost of goods sold (COGS).

Margin and Markup move in tandem. For example, a 40% markup is always equivalent to a profit margin of 28.6%, while a 50% markup is always equivalent to a margin value of 33%.

Cost price is actually the ultimate price at which the seller buys the product or service. He then adds a percentage of profit to it. The list price or marked price is the price which a seller fixes after adding the needed percentage of profit.

Example:

Maria marks all her products 30% above the cost price and offers a discount of 5% on the marked price. She is of the viewpoint that she will earn a profit of 20%. What do you think is the percentage of the profit she earns?

Solution:

Let the cost price of the products be 100.

Thus, the list price/marked price will be = â‚¹100 + 30% of the cost price.

= 100 + 30

= 130

Now, the Selling price = List/Marked price â€“ Discount

= 130 â€“ 5% of 130 = 130 â€“ 6.5

= 123.5

Therefore, the profit = SP-CP

= 123.5 â€“ 100 = 23.5

Hence, the percentage of profit she earned is below 20%.

Example:

A new retailer in the market marked all his goods at 50% above the cost price thinking that he will still earn a profit percent of 25%, offering a discount of 25% on the list price. Find out his actual profit on the sales?

Solution:Â

Let the cost price = Rs. 100

Then, list price = Rs. 150

Â Thus, Selling Price = 75% of Rs. 150Â

= Rs. 112.50.Â

Hence we can conclude that the profit % he earned = 12.50%.Â

FAQ (Frequently Asked Questions)

1. What is the Significance of a Selling Price?

Answer: Selling Price is a crucial aspect for both consumer as well as a seller since the sale and demand of a commodity depends on it largely. Any commodity that has a high or says unreasonably high selling price may not be able to attract many buyers as they would perceive the product is not value for money. On the contrary, a very low selling price can impact upon the profitability of the business and moreover indicate an inferior quality of the product. Thus, selling price needs to be set appropriately considering the market analytics and consumer demand.

2. How a Seller Should Determine the Selling Price?

Answer: Selling price can also be referred to as list price, market price, or standard price. The given factors help organizations and traders identifying the selling price of its products:

The price that a consumer is willing to pay

The price that a seller/shopkeeper is willing to accept

The price that's competitive in the target market

Depending on the nature of business and its offerings, it might also prioritize one of the aforementioned factors over the others. Having said that, the average selling price of a commodity can also be used to identify the price you should allocate to your product.

3. What Do We Understand by the Average Selling Price?

Answer: Average selling price refers to the amount a product in a particular category is sold for, across different channels and markets. This pricing can also be used as a barometer for businesses that require identifying a selling price for its commodities.